A home equity loan is basically a second mortgage, in which you take out the total amount you intend to borrow in one lump sum and pay it back every month. The time period is typically 5-15 years. A home equity line of credit, or HELOC, gives you the ability to borrow up to a certain amount over a 10-year period. There are many benefits of HELOCs and Home Equity Loans, including lower interest rates and tax benefits.
Your home is what makes your home equity loan or line of credit secure. These loans have lower interest rates than other types of unsecured debt, such as credit cards or personal loans. This can help you save on interest payments and improve monthly cash flow if you need to lower high-interest debt.
The 2017 Tax Cuts and Jobs Act allows homeowners to deduct the mortgage interest on home equity loans or lines of credit if the money is used for capital improvements, such as to “buy, build or substantially improve” the home that secures the loan.
Home equity is the difference between your home’s current market value and your mortgage balance. Your home equity can increase in a few circumstances:
When you make mortgage payments
When the property value rises
When you make certain improvements to the property